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WhatDoMobilePaymentAppsandFaxMachinesHaveinCommon?

in Blog

on 03 May 2017

By: David Frankil, NJCUL President/CEO

A recent CU Times article reported on a survey of U.S. millennials that showed they are using third-party solutions like Venmo for mobile payments, instead of a mobile app provided by any individual financial institution. The study of 2,170 U.S. millennials, done by education loan company LendEDU, found that 44% of people born between 1981 and 1997 say PayPal-run Venmo is the mobile payment app they use most often.

I’d describe this as demonstrating that mobile payment apps are evolving into a classic network effect business model.

Fax machines offer a great example of the dynamics of a network effect business model. If you have one fax machine, it’s a wonderful paperweight or doorstop. If you and a friend both have one, then it is useful once in a while – maybe more often if that friend is your lawyer or accountant. If you, your friend, and 100 million others have fax machines, then it is an exceptionally useful communications device (at least until email and scanners in our phones come along).

Many of us expend considerable resources on building and deploying private-label mobile apps for our credit unions, with functionality ranging from the prosaic (looking at account balances) to the more advanced (remote deposit capture, alerts, loan and credit card applications). We see them as a competitive necessity to attract and retain the digital-savvy member, and as a competitive advantage making it easy to do business with us (if done well).

As the payments marketplace has evolved, much of the discussion has centered on whether third-party peer-to-peer payments solutions like Venmo are a threat to traditional financial institutions, with significant risk of disintermediation.

Even though the survey focused on millennials, this is not just an issue for their demographic; we can’t ignore the signals the broader market is sending us. The CU Times article also referenced Aite Group research showing that the peer-to-peer (P2P) mobile and online payment platforms market is estimated to be worth more than $1.2 trillion. Regardless, as millennials age, they aren’t likely to stop using digital payments solutions.

So do we need to be looking at strategies in which our stand-alone solutions incorporate P2P payments functionality as complementary components of our individual apps, enhancing reach, use, and adoption?

There is a great precedent for this in the credit union business with another network effect business model – Shared Branching. Luckily, CO-OP Financial Services is already a step ahead of us with an answer that adapts the Shared Branching network to the digital world with real-time P2P mobile payments.

Check out their RealPay solution, which enables members to send money to anyone from their mobile phones, and which can be integrated with existing CU apps. Recipients simply receive a message, input their information and receive their funds - instantly to RealPay users, while funds arrive via ACH to out-of-network receivers.